Coronavirus can't stop cash, even as remittance services go digital

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Prior to the coronavirus pandemic, people sending remittances to emerging markets often specified cash payouts even when sending funds digitally. Now consumer remittance behaviors are being forced to change, with senders and recipients moving to mobile wallets, bank accounts, and cards.

However, the trend isn’t as clear-cut, since the preference for cash remains — and in some markets, if money transfer agents are located in essential businesses such as grocery stores, consumers can still send and receive cash.

The World Bank views the digitization of remittances as a means of alleviating economic hardship. It warns that COVID-19’s economic impact will lead to a 20% drop in global remittances this year, which will drastically hit emerging economies. So it wants the money transfer industry to migrate to end-to-end digital remittances, which can be up to 50% cheaper than cash remittances. In addition, the World Bank is calling for governments to lighten regulatory barriers to entry for digital remittance providers, and to treat money transfer companies as essential services so their agent locations can remain open.

“In large remittance-sending countries such as the U.S., France and Italy, service-sector jobs have been hit hard,” said Gabor Hava, vice president of global network at cross-border payments provider Thunes. “Many migrant workers are affected and may struggle to send remittances. Our remittance partners working with physical networks in countries under lockdown have been severely impacted, but bank account transfers are up 30%, and mobile wallet transactions have doubled from a year ago.”

“COVID-19 accelerates what was already a gradual shift to digital,” but people still receive cash in markets that allow it, said Daniel Canning, WorldRemit’s general manager for the Americas region.

Countries where strong adoption of mobile money has occurred already are more resilient than countries dominated by cash remittances.

“We’ve seen a steep increase in intra-African payments via mobile phones compared to traditional ways of remitting funds,” Hava said. “Some African mobile wallet providers have launched zero-fee transactions to support their communities by facilitating the adoption of their services.”

London-based WorldRemit has seen growth in digital remittances from Europe and North America.

“In the U.S., Canada, Spain, Italy, and the U.K., which have strict lockdowns, people who regularly sent money from retail locations before March, are moving in droves to digital,” said Daniel Canning, WorldRemit’s general manager for the Americas region. “They don’t want to put themselves at risk by leaving home. In the U.S., our activation rate for new customers doubled in March going into early April.”

WorldRemit offers digital remittances only on the send side, but recipients can select cash pick-up as well as deposits to bank accounts, mobile wallets, or cellphone airtime. In Fiji and Thailand, WorldRemit has seen a 100% shift to digital, reflecting government announcements that cash payout locations aren’t essential and must close.

“In Colombia, where we have a sizable business, there’s a severe lockdown,” said Canning. “So the shift from cash to digital methods such as bank accounts and digital wallets has been very significant there in the past four weeks. Historically, we saw 65% of total Colombian volumes going to bank accounts, and this is now 75%."

But this is clearly more of a government-driven shift in behavior than a consumer-driven shift in behavior. In countries where physical agent locations are still open, the trend to digital is more muted.

"Mexico’s national lockdown hasn’t been enforced as strictly as in Colombia, so, while we’ve seen a shift from cash to bank account transfers in Mexico, this isn’t to the same extent as in Colombia," Canning said.

Consumers in send markets who were forced to migrate to digital won’t return to cash remittances once restrictions are eased, Canning predicts. “COVID-19 accelerates what was already a gradual shift to digital,” he said.

WorldRemit’s entire staff of 1,200 employees in 15 different geographies now work from home, and are handling increased volumes of incoming customer service calls.

“This was quite a challenge for our 500 employees in Cebu, Philippines, many of whom didn’t have home Wi-Fi,” said Canning. “We had to purchase and send out mobile Wi-Fi kits to them.”

Partnerships with local digital wallet schemes are important to create end-to-end digital remittances. For example, Visa has just announced a partnership, subject to regulatory approval, with Safaricom to connect the Kenyan telco's M-Pesa mobile wallet to its network for payments and transfers.

In March, just before COVID-19 restrictions took effect, WorldRemit partnered with Davivienda to enable remittances to be sent to the Colombian bank’s DaviPlata mobile wallets for 99 cents per transaction.

“In Spanish-speaking Latin America, DaviPlata is the biggest mobile wallet with around 6 million users,” Canning said. “Latin American mobile wallets haven’t evolved as broadly as in East Africa and Asia in terms of adoption. We’re one of the very few money transfer companies to have enabled remittances into DaviPlata.”

For Davivienda, attracting remittance recipients into its branches to collect cash is expensive and potentially a health risk, especially as it is closing branches and restricting hours. So it makes economic sense for Davivienda to offer direct deposit to DaviPlata wallets, Canning said.

One route to digitizing remittances — while still allowing cash payouts — involves connecting to ATM networks in receiving countries, especially as collecting cash at ATMs may be safer than going to agent locations.

U.S.-to-Mexico remittance service Poni Card enables unbanked recipients to withdraw funds from Mexican ATMs using prepaid cards, with PINs being sent by remitters via SMS.

“Our call center has seen a 46% increase since March in registrations of Poni Cash Cards distributed by our key Mexican partner Comex,” said Gricha Raether, Poni Mexico’s country manager. “The growth suggests that Mexican recipients are preparing to move from the agent payout model to ‘agentless’ transactions on the receiving side. We’ve noticed that our U.S. money transfer partners are attempting to shift remittances to digital, for instance through ‘hand holding/concierge’ programs to assist people willing to shift to digital.”

Digital customer growth on the sending side helps people on the receiving side to go digital, said Alberto Macciani, chief marketing officer at U.K.-based Paysend, which only offers digital account-to-account remittances.

“We’ve seen new customer numbers rise because of COVID-19,” he said. “March was a record month for us, with 106,000 new clients, taking us to 1.6 million in total. This was higher than our usual monthly growth.”

The move to digital driven by COVID-19 builds on an existing remittance trend away from cash, with MoneyGram reporting 57% growth year-on-year in digital transactions in its first quarter, which ended March 31. Digital transactions accounted for 18% of all MoneyGram remittance transactions at the end of the quarter, while walk-in transactions fell by 6% year-on-year.

U.K-based TransferGo was already seeing growth in remittances before COVID-19, said CEO Daumantas Dvilinskas.

“Throughout this turbulent period, both pre- and post-lockdown, we’ve maintained consistent business performance, with remittance levels trending positively,” he said. “This reflects the fact that, as high-street footfall declines and cash goes out of fashion, remitters are increasingly reliant on digital transfer services to support their families.”

TransferWise is a digital-only platform, so it doesn't have a cash payout option.

“Our March volume was very strong, and we saw an increase in monthly new users,” said Nick Lembo, TransferWise’s head of Americas growth. “But it can't simply be attributed to COVID-19. Given foreign exchange rates fluctuations and the strengthening U.S. dollar, it's no surprise we saw stronger volumes. We're continuing to build our platform and just launched the first fully online remittance service in the UAE.”

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Coronavirus Digital payments Cross border payments Remittances U.K.